2023-09-28 08:45:00 ET
Summary
- The stock market and the economy are two different things, and the Fed's mandate is not to prioritize the stock market.
- The Dividend Harvesting Portfolio took a hit in Week 134, but it remains in the black and continues to generate dividend income.
- The portfolio's diversification and consistent cash flow from dividends help mitigate downside risk and provide long-term stability.
The markets crumbled after Hurricane Powell as the S&P 500 finished down -2.93% and the Nasdaq fell -3.62% for the week. I am concerned that too many people are confusing the stock market and the economy. They are two completely different things, and the Fed isn't mandated to do what is best for the stock market. Their dual mandate consists of balancing between achieving stable prices and maintaining maximum sustainable employment. So many people have gotten this wrong and come up with every reason under the sun as to why the Fed needs to or should have started cutting rates. The bottom line is that Jerome Powell has been straightforward in his message as the Fed raised rates when they felt they were appropriate, and now they are letting the data dictate what will happen in the future. There is no cryptic message, but many investors were caught offsides because they finally realized that the Fed actually means higher for longer. I am not worried about what occurs on a weekly or monthly basis, and I will continue to invest capital for the long term. These types of pullbacks are buying opportunities for me, and if we see a pullback rather than a rally into the end of the year, I will continue to dollar cost average into several of my positions.
Week 134 wasn't great for many investors, and the Dividend Harvesting Portfolio took the sell-off on the chin. After 134 weeks, I have allocated $13,400 toward the Dividend Harvesting Portfolio, which now has an account balance of $13,475.27. While it's still in the black, profitability took a hit, going from being up 3.44% to 0.56% over the past week. This was a light week for dividends as $1.47 was generated from 3 positions, bringing the amount of income generated in 2023 to $658.20. In week 134, I dollar cost averaged into two of the most hated companies I can think of, AT&T ( T ) and Medical Properties Trust (MPW). This increased my forward annual projected income by $8.73 or 0.76% to $1,163.15. This will probably turn out to be an unpopular decision in the comment section, but I see a long-term opportunity here, even if there is some more pain on the horizon.
The overall performance of the Dividend Harvesting Portfolio since inception
The Dividend Harvesting Portfolio continues to mitigate downside risk while producing an ongoing stream of dividend income as it closed in the black for its 13 th consecutive week. I am not trying to beat the market, and this account is doing exactly what I expect it to. Its diversification is providing stability as the underlying assets are providing a much larger yield than I could find from risk-free assets, and my payment schedule is weekly. Maybe the portfolio dips into the red if the markets continue to sell off, but based on the historical data, the Dividend Harvesting Portfolio is likely to trade within what I consider an acceptable range.
The Dividend Harvesting Portfolio dividend section
Here's how much dividend income is generated per investment basket:
- Equities $347.72 (29.89%)
- ETFs $251.25 (21.60%)
- REITs $237.69 (20.43%)
- CEFs $190.60 (16.39%)
- BDCs $135.90 (11.68%)
Collecting dividends can serve many functions in a portfolio. Some investors utilize dividends to supplement their income and live off of them. I'm building a dividend portfolio for myself 30 years into the future. In 2022, I collected $507.80 in dividend income from 533 dividends. In week 37 of 2023, I collected $20.36 in dividends, and in 2023, I exceeded the amount of income generated from dividends compared to 2022. In 2022, I generated $490.76 from dividend income, and in 2023, I generated $658.20, which is 134.12% of my total 2022 dividend income. I have collected 464 dividends, 87.05% of the total dividends generated in 2022.
These dividends allow me to gain additional equity in my investments while increasing my future cash flow in down markets. This style of investing isn't for everyone, but if you're looking to generate consistent cash flow while mitigating downside risk, this method has worked for me. I'm hoping to collect around $1,000 in dividends in 2023, which will be reinvested. I am getting closer and closer to the $1,200 of projected dividend income on an annualized basis and will soon exceed a monthly average of generating $100 in dividends.
We're headed into the last month of September, and I am excited to see the income that is generated. Last year, $47.96 of dividend income was generated in September, and in the first year of this series, I generated $12.51. To date, I have collected $52.63 of dividend income this September, and I am expecting a revolving door of income being generated this week. Sooner than later, I think we're going to see $100 be the minimum amount of dividend income being generated each month.
This week, 28 positions are projected to generate roughly $39.41 of dividend income. It's going to be interesting to see where we finish the month. We're heading into Q4, and October could be the first month ever where I generate more than $100 of dividend income. I took a sneak peek at what the calendar looks like, and it's an onslaught of dividends being generated.
I have broken this into two sections, positions not generating at least one share per year through its dividend and positions that are. In the section for the positions, I have shaded it green and added how many shares are being generated annually and the new future dividend income those new shares will generate. In week 134, Kinder Morgan ( KMI ) declined in value, which pushed its yield higher, and is now the 28 th position, generating at least 1 share annually through its dividends. These new shares from the top 28 positions are projected to add $90.23 of dividend income annually. I will work on getting more positions over to the green block, with a new goal of generating an additional $100 of dividend income from new shares generated.
The Dividend Harvesting Portfolio Composition
In week 134, I added to my position in MPW, which helped REITs stay above the 20% level. Eventually, REITs will fall under the 20% level again, but it could be a while. I am planning to work on increasing the overall percentage of the portfolio mix from BDCs and individual securities over the next several months.
In week 134, Enbridge ( ENB ) and Altria Group ( MO ) remained my largest positions. I was surprised that Simon Property Group ( SPG ) crept back into the top-10. I haven't added to SPG in a long time, even though it's one of my favorite REITs. I am hoping that the top-10 continues to flatten out over time.
Week 134 additions
In week 134 I added to my positions in:
AT&T
- I recently wrote a dedicated article on AT&T, which can be read by clicking here .
- I have been wrong, and AT&T has continued to disappoint the market no matter what has occurred. I was in the red on AT&T and decided to dollar cost average into the position after AT&T reaffirmed its $16 billion in FCF for 2023.
- I have gone through AT&T's debt profile, and by my calculations, they have more than enough cash on hand, and FCF is being generated to repay all of their obligations and service its debt over the next several years.
- I am putting my faith in their management team as they continue to indicate that debt repayment is a top priority. I want to see what they do, and if they stick with the plan this time, AT&T could actually have a real chance at rebounding into the $20s. If management goes off on another tangent, I may be forced to throw in the towel and recognize defeat. As of now, I think AT&T is very undervalued and can still work out to my benefit.
Medical Properties Trust
- MPW was the worst position in my portfolio, and I decided to dollar cost average when shares plunged even lower this week.
- For now,, I am sticking around, and as much as the dividend reduction hurts, it puts MPW in a better financial position. The facts are that MPW still has a book value of $13.89 and yields over 11% again.
- At this point, a lot will be determined this earnings season as I will pay extra attention to their earnings report and conference call. I think MPW can rebound, and while I added, I am still being cautious. MPW can certainly go lower, but at this point, I was able to shave a good amount off my cost per share.
Week 135 Gameplan
I am considering adding the NEOS S&P 500 High Income ETF ( SPYI ) or NextEra Energy ( NEE ) to the Dividend Harvesting Portfolio. I am also thinking about adding another share of Realty Income ( O ) at these levels.
Conclusion
In week 134, the markets significantly retraced after Hurricane Powell, and the Dividend Harvesting Portfolio followed suit. The aspect that I focus on is the level of fluctuation, as the Dividend Harvesting Portfolio continues to mitigate downside risk quite well while generating an ongoing stream of income. Looking at the graph below, it will be interesting to see what the projected income looks like in week 300 as the snowball effect continues. If the markets decline over the next several weeks, I will take the opportunity to dollar cost average further into some positions as I am building this as a long-term income-generating portfolio rather than trying to beat the market.
For further details see:
Dividend Harvesting Portfolio Week 134: $13,400 Allocated, $1,163.15 In Projected Dividends